ISTANBUL

Escalating military confrontation involving Iran is raising alarm across global markets, as investors and policymakers weigh the economic consequences of prolonged instability in the Middle East.

At the center of those concerns is the Strait of Hormuz -- a narrow maritime chokepoint that facilitates the daily transit of roughly 20% of global petroleum and liquefied natural gas (LNG). Any sustained disruption could reverberate far beyond the region, hitting energy prices, supply chains and inflation worldwide.

Energy markets reacted swiftly after Iran threatened to block maritime traffic following joint US and Israeli strikes. Insurers temporarily halted coverage for vessels transiting the strait, while crude prices jumped as traders priced in the risk of prolonged disruption.

Analysts warned that a sustained closure could push Brent crude above $100 per barrel, with some scenarios projecting prices as high as $150 if exports are significantly curtailed.

On Wednesday, Brent crude hit $82, up from $66 at the beginning of February.

Bryan Clark, senior fellow at the US-based Hudson Institute, said a closure lasting several months is unlikely, but warned that security risks could mirror the prolonged instability seen in the Red Sea.

Meanwhile, shipping costs have skyrocketed. The benchmark freight rate for very large crude carriers loading in the Middle East Gulf reached record highs this week – jumping 94% from Friday to Monday.

Despite OPEC members already scaling up their production by more than 200,000 barrels per day, Clark told Anadolu that they may not be able to fully compensate for lost Iranian output.

Noah Barrett, a research analyst at the UK-based wealth management firm Janus Henderson, said Monday that even if the region's energy assets remain online, any reduction in shipping activity through the Strait of Hormuz could lead to sustained higher energy prices.

"The damage to global production,” he said, “could tilt the balance in global oil markets toward undersupply."

Natural gas markets feel strain

LNG markets are also facing significant pressure.

“These effects will be most acute regarding LNG, which has tighter supplies than crude oil,” said Clark. “Qatar is a major exporter of LNG and would not be able to export without access through the Strait of Hormuz.”

The QatarEnergy facility, which accounts for around a fifth of global LNG supply, also halted on Monday after an Iranian drone attack. On Wednesday, the company declared force majeure to affected buyers.

European gas was up around 80% since Friday’s close, Bloomberg reported on Tuesday.

“In the near term, shipping and energy companies will need to pursue alternative routes to export, such as using pipelines or trucks to bypass the Strait and reach shipping terminals outside the Persian Gulf,” he said.

However, Australia and the US may be able to make up for these losses and supply allies such as Taiwan, Japan and Korea, which depend heavily on LNG for electricity production, he noted.

Fertilizer, agriculture risks

The economic exposure extends beyond hydrocarbons.

Kirill Dmitriev, the CEO of the Russian Direct Investment Fund and special envoy of the Russian president, said on Tuesday that the fertilizer, and therefore agriculture markets, are heavily exposed to disruptions in the Strait of Hormuz.

On the US social media platform X, he said that around 44% of sulfur, 31% of urea, 18% of ammonia and 15% of phosphates -- all key fertilizer components -- transit the region.

“Major commodity and agricultural shocks ahead,” he wrote.

Any disruption to fertilizer exports could compound inflationary pressures in food markets, particularly in emerging economies heavily dependent on imports, as it did after the war in Ukraine broke out.

Container shipping disrupted

Container shipping has also been impacted, with major carriers withdrawing from the region entirely.

Danish shipping company Maersk announced Sunday it would suspend vessel crossings in the Strait of Hormuz, rerouting all services around the Cape of Good Hope at the southern tip of Africa, until further notice due to the “deteriorating security situation” in the region.

Mediterranean Shipping Company (MSC), which held the top position in global container shipping capacity in 2024, also announced suspending “all bookings for worldwide cargo to the Middle East region until further notice.”

That detour around the Cape of Good Hope will significantly increase operational costs and disrupt supply chains, Rico Luman, senior economist on transport, logistics and the auto industry at ING Group, told Anadolu earlier, particularly for shipments heading to Türkiye and the broader Mediterranean region.

He warned global markets to brace for extended journey times and persistent supply uncertainty as regional instability combines with higher fuel prices to push overall shipping costs upward.

“The idea that this was going to be a calmer year, that freight rates were going to settle down, that supply chains might begin to return to normal, that ships might return through the Suez -- all that is totally off the table now,” Peter Tirschwell, vice president for maritime and trade at S&P Global Market Intelligence, said in a post on LinkedIn Monday.

“The whole industry is looking at potentially months of disruption as a result of this,” he added. “Here we are, back in the soup, in terms of geopolitical impact on container shipping supply chains.”